University of Oxford aims high with private equity investments

At around 1,000 years old, the University of Oxford is one of the best established education bodies in the world. But its investment plans are anything but traditional.

The university’s £1.7 billion Oxford Endowment Fund was set up to help finance scholarships, building projects and staff salaries. It has to provide funding across all 25 of the university’s colleges, a big ask by any standards. In order to meet demands, the fund has looked into alternative investments and, with an open mind, it has opted to invest in private equity.

A surprising choice

A report from the Financial Times confirmed that the Endowment Fund has actually doubled its exposure to private equity since 2012. The increase is somewhat surprising given that back in 2012 the fund’s chief executive Sandra Robertson had been rather critical of the alternative investment, claiming that the investment documentation for private equity was “designed by lawyers only to be interpreted by lawyers … and that’s before you’ve even tried to begin calculating carried interest.”

She did, however, add that she while she would not “allocate blindly to private equity”, the fund needed “proof that the time and resources required to invest is worthwhile”.

The Oxford Endowment Fund now invests 18 per cent of its assets in private equity, a substantial increase from the eight per cent recorded in 2012 and a sound indication that the fund would appear to have found the proof it needed to invest. For Oxford’s fund, the decision to invest looks to have paid off. Its latest annual report revealed that after fees, last year’s private equity investments returned 25.4 per cent. On an annualised basis since 2009, they returned 13.6 per cent.

Private equity industry movement

Private equity appears to be playing its role well in providing healthy returns for the Oxford Endowment Fund. The university fund isn’t alone as fundraising efforts across private equity have seen high levels of investment due to the good returns seen recently.

But this is creating an unusual situation as fund managers are witnessing a lack of quality deals and so they’re holding onto cash. a recent article from the Wall Street Journal noted that although a record amount of money has been invested in European private equity firms over the past two years, the firms themselves are reluctant to spend it due to the high price tags on businesses and assets.

Ian Bagshaw, a White & Case partner, told the WSJ: “Competition for premium assets has never been more fierce.”

According to Preqin, there is now some $1.4 trillion floating around the world’s private equity industry in ‘dry powder’ – a term used to describe unspent cash. This is the highest level since Preqin began keeping records back in 2000, while in Europe, it’s at its highest since 2010.

The future of private equity

With an increasing number of operators in the M&A industry, private equity funds are being forced to reassess their position within the industry.

For the moment, it seems clear that funds are still making good money, as evidenced by the Oxford Endowment Fund, but to keep up these kinds of returns, funds will need to build more creative and targeted strategies if they want to stand a chance of getting hold of the most desirable deals as competition intensifies.

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